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Econ Journal Watch,

Volume 4, Number 2,
May 2007, pp 197-212.

SYMPOSIUM: TRAILBLAZERS TOO

LIGHTLY MENTIONED?

Peter Bauer: Blazing the Trail of

Development

IAN VÁSQUEZ*ε

ABSTRACT

PETER BAUER (1915-2002) WAS A PIONEER AND A GIANT IN THE FIELD

of development economics. His contributions to the understanding of
economic progress, beginning in the 1940s with studies of the rubber industry
in Malaya, spanned more than five decades and dealt with a range of the most
important development issues, including many that were not considered
important at the time.
According to Amartya Sen (2000, ix, xi), “Peter Bauer is in a class of his
own as an outstanding economist. The originality, force, and extensive bearing
of his writings have been quite astonishing…[He is] one of the great architects
of political economy.” In 1984, the World Bank published a volume of essays
from ten leading post-war development economists (Meier and Seers 1984). It
included Bauer along with such luminaries as Arthur Lewis, Paul Rosenstein-
Rodan, and Gunnar Myrdal.
That level of peer recognition, however, was atypical during most of
Bauer’s career. Bauer remained one of a few “voices in the wilderness”1 largely
because he stood virtually alone in challenging the development orthodoxy that
held central planning, forced savings, protectionism, and official international aid
as main tenets. Probably more typical of professional sentiment was Walt
Rostow’s (1990, 386) description of Bauer as a “neo-classical gadfly” whose

* Center for Global Liberty and Prosperity, Cato Institute, Washington, D.C., 20001-5403
ε
I would like to thank James Dorn for providing comments on a previous draft of this paper and Tanja
Stumberger for her research assistance.
1 Gustav Ranis (2004, 6).

197
IAN VÁSQUEZ

usefulness was as a “devil’s advocate” to the complex issues being considered by

other development economists.
With the success of outward-oriented East Asian economies and the collapse
of development planning, Bauer’s views have generally been vindicated. From the
vantage point of the 21st century, it is easy to forget that the hold of the development
orthodoxy was strong long after there was ample evidence of its failings. As late as
1985, for example, Indian Prime Minister Rajiv Gandhi (1985)—who would be the
first to introduce market reforms in India
in the late 1980s—wrote that despite vast
problems in collecting and analyzing data,
“the solution perhaps lies in improving the
tools of collection and analysis of data and
not in abandoning the planning effort
itself.” No doubt, Bauer would have been
unsurprised that the political leader of the
country that had epitomized the
development path advocated by the post-
war orthodoxy was still clinging to the
allure of planning despite decades of
dismal performance. Institutional inertia
and vested interests can explain Gandhi’s
early attitude.
Less understandable is why
Peter Bauer intellectuals, and specifically economists,
Photo courtesy of Sally Yates took so long to arrive at more market-
liberal ideas as a guide to policy in
developing countries. Even less understandable is why, in the post-communist era,
Bauer’s contributions are often still neglected or marginalized by the economics
profession.
An example of this neglect is a survey article on trade policy and development
by Anne Krueger (1997) appearing in the American Economic Review:

The improvement in living standards, life expectancy, and

economic growth prospects in developing countries ranks among
the most important success stories since the Second World War.
Growth in some has been dramatic, and while progress has been
far from uniform, there are grounds for optimism that future
growth prospects can be even better than performance to date.
One factor accounting for that success has been improved
understanding and adoption of economic policies much more
conducive to satisfactory economic growth than was the case in
the 1950’s and 1960’s. That better understanding, in turn, resulted
from a combination and interaction of research and experience
with development and development policy.

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Ideas with regard to trade policy and economic development are

among those that have changed radically. Then and now, it was
recognized that trade policy was central to the overall design of
policies for economic development. But in the early days, there
was a broad consensus that trade policy for development should
be based on “import substitution.” By this was meant that
domestic production of import-competing goods should be
started and increased to satisfy the domestic market under
incentives provided through whatever level of protection against
imports, or even import prohibition, was necessary to achieve it. It
was thought that import substitution in manufactures would be
synonymous with industrialization, which in turn was seen as the
key to development.
The contrast with views today is striking. It is now widely
accepted that growth prospects for developing countries are
greatly enhanced through an outer-oriented trade regime and fairly
uniform incentives (primarily through the exchange rate) for
production across exporting and import-competing goods. Some
countries have achieved high rates of growth with outer-oriented
trade strategies. Policy reform efforts removing protection and
shifting to an outer-oriented trade strategy are under way in a
number of countries. It is generally believed that import
substitutions at a minimum outlived its usefulness and that
liberalization of trade and payments is crucial for both
industrialization and economic development. While other policy
changes are also necessary, changing trade policy is among the
essential ingredients if there is to be hope for improved economic
performance.

Krueger goes on to ask how this change in policy came about, and “what
was the contribution of economists and their research to the process?”
Krueger’s research, of course, played a key role in making the case for more
open trade regimes for developing countries, along with that of other leading
researchers such as Jagdish Bhagwati, Ian Little, and T.N. Srinivasan, whom
she cites. Yet Krueger does not mention Bauer. In a related essay on the
development experience, she surveys the contributions of numerous leading
development economists but also does not mention Bauer (Krueger 1995).
Kreuger is not alone in the marginalization of Bauer. Another example
(many could be given), is Jean Waelbroeck’s 30-page review of the three
volumes of the Handbook of Development Economics, a review that appeared in
World Bank Economic Review (Waelbroeck 1998). Waelbroeck surveys the
findings of the three volumes (which include Krueger’s 1995 article) and
promises to identify “areas of development economics not covered there,” but

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Chief Works by Peter T. Bauer

“The Working of Rubber Regulation,” The Economic Journal,1946.

“Economic Progress and Occupational Distribution,” with Basil S.
Yamey. The Economic Journal, 1951.
The Rubber Industry: A Study in Competition and Monopoly. Longmans, Green
& Co., 1948.
“Reduction in the Fluctuations of Incomes of Primary Producers,” with
F. W. Parish. The Economic Journal, 1952.
West African Trade: A Study of Competition, Oligopoly and Monopoly in a
Changing Economy. Cambridge University Press, 1954.
The Economics of Under-developed Countries, with Basil S. Yamey. Cambridge
University Press, 1957.
Economic Analysis and Policy in Underdeveloped Countries. Cambridge
University Press, 1957.
United States Aid and Indian Economic Development. American Enterprise
Association, 1959.
Indian Economic Policy and Development. Allen & Unwin, 1961.
Markets, Market Control and Marketing Boards, with Basil S. Yamey.
Weidenfeld & Nicolson, 1968.
“Economic History as Theory.” Economica, 1971.
Dissent on Development: Studies and Debates in Development Economics. Harvard
University Press, 1972.
Equality, the Third World and Economic Delusion. Harvard University Press,
1981.
“Remembrance of Studies Past: Retracing First Steps.” In Pioneers in
Development Economics. Oxford University Press, 1984.
Reality and Rhetoric: Studies in the Economics of Development. Harvard University
Press, 1984.
“Creating the Third World: Foreign Aid and its Offspring.” Journal of
Economic Growth, 1987.
The Development Frontier: Essays in Applied Economics. Harvard University
Press, 1991.
From Subsistence to Exchange and Other Essays. Princeton University Press,
2000.

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does not cite Bauer. Of the Handbook’s 46 articles, only seven of them cite
Bauer.
Indeed, a literature search of the American Economic Review beginning in
1911 when it was first published and extending through 2004 finds only seven
articles with references to Bauer and three book reviews in which Bauer is
cited.2 Articles in the World Bank’s in-house journals, the World Bank Economic
Review (from 1986 through January 2007) and the World Bank Research Observer
(from 1986 through 2006) cite Bauer only six times. (An Excel file detailing
these search results is linked at the end of this article from Appendix 1.)
The omission is doubly striking as Bauer both addressed many of the
main development issues early on and examined the possible causes of what he
called the “spurious consensus” on economic development. Indeed,
throughout his career, Bauer (2000, 15) repeatedly pointed to “a widespread
disregard of evident reality” in his field, and would come to observe that
“Impressive advances coexisted with alarming retrogression.” The advances
included contributions to the theory of international trade and the economics
of property rights, and the recognition of transaction costs. The lapses
included the neglect of fundamental economic principles, conceptual
confusions, methodological pretentiousness, and the lack of direct observation.
Some of what Bauer saw as troubling in the economics profession—for
example, over-reliance on formal analysis and the mathematization of the
field—still exists and may help explain the neglect of Bauer even among those
who arrive at the same insights and general policy prescriptions as Bauer.

BAUER’S VIEW OF DEVELOPMENT

Bauer’s analysis of policy and development were strongly informed by a

well-defined view on the meaning of development, a perspective that he
formed early in his career:

I regard the extension of the range of choice, that is, an increase in

the range of effective alternatives open to people, as the principle
objective and criterion of economic development; and I judge a
measure principally by its probable effects on the range of
alternatives open to individuals. This implies that the process by
which development is promoted affects the assessment, and
indeed the meaning, of the result. The acceptance of this objective
means that I attach significance, meaning, and value to individual
acts of choice and valuation, including the individual time
preference between the present and the future; and my position is
much influenced by my dislike of policies or measures which are
likely to increase man’s power over man, that is to increase the
2 That does not include Bauer (1956).

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control of groups or individuals over their fellow men. (Bauer

1957, 113-14).

From the beginning then, Bauer expressed a set of values that both
guided his thought and were non-patronizing to his subject of study, and that
ran counter to the views of those advocating extensive state interventionism in
developing countries. Bauer’s views were certainly in conflict with those of
Myrdal, who believed in comprehensive central planning as a way of
transforming entire societies, institutions and the attitudes and behaviors of
people. “The success of planning for development,” Myrdal (1968, 67) wrote,
“requires a readiness to place obligations on people in all social strata to a
much greater extent than is now done in any of the south Asian countries. It
requires, in addition, rigorous enforcement of obligations, in which
compulsion plays a strategic role.” Candid authors like Myrdal and Robert
Heilbroner (1963, 20-21, 126f) made clear the profoundly illiberal nature of
many of the policies favored by the development consensus. Such views, of
course, turned out to be spectacularly wrong.
But Bauer’s emphasis on personal choice also put him at odds with
much of the economics profession which often justifies policies on purely
technical grounds—such as on an emphasis on output—with little or no
regard to the preferences or the freedom of choice of the people affected by
the policies proscribed. Bauer’s approach clearly placed him in the classical
tradition, rather than the neoclassical tradition, and as Lal (1987, 45, 46) points
out, his views draw from an older rhetorical tradition as well, making many
economists—such as Srinivasan—uncomfortable with Bauer even though they
may reach much the same policy conclusions. According to Lal, the rhetoric of
such mainstream economists to justify the market comes from second-best
welfare economics “couched in the Arrow-Debreu language.”
A further characteristic that distinguished Bauer’s approach was his
recognition of the limitations of both statistical evidence and the use of
mathematics and the quantifiable in the study of development. What to much
of the profession was and is a sign of scientific rigor to Bauer was a misplaced
focus on seemingly measurable factors, such as capital, and to the neglect of
influences, such as the historical context and background conditions, far more
important to development. “It has encouraged confusion between the
significant, on the one hand, and the quantifiable (often only spuriously
quantifiable), on the other” (Bauer 2000, 19).
What matters most is direct observation and reliance on primary sources.
That belief made Bauer exceptionally interdisciplinary, relying on the work of
historians, business accountants, anthropologists, and even travel writers. Thus
his criticisms and his approach may have alienated him from much of the
economics profession even after the tepid pro-market consensus was formed.
Indeed, late in life Bauer (2000, 20) would still lament: “What has become of
the traditional method of direct observation, reflection, tracing of connections,

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reaching tentative conclusions, and referring these back to observation and to

established propositions of the discipline, or to findings of cognate disciplines?
Such procedures are no less informative than quantitative analysis. For
instance, with the traditional approaches the economist was much more likely
to be aware of the gap between theoretical concepts and the available
information.”3
Bauer’s critiques of growth models reflect his distrust of over-reliance on
formal analysis and are largely valid to this day. Growth models may have
encouraged the emphasis on the aggregative and quantitative approach in
development economics, and also conferred an air of rigor to such analysis.
But Bauer (1984, 34) warned that conventional growth models were
“unhelpful and even misleading” because they ignored the fact that the
parameters were affected by the chosen variables, which themselves he came
to recognize as “unimportant.”4 People’s attitudes or the political situation,
variables omitted by growth models, are far more important to progress than
the stock of capital, and attempts to increase that stock by tariffs, for example,
will affect a model’s parameters and have an impact on development far
greater than any increase in capital stock.
Growth models thus “become travesties” (Bauer 1972, 285) that are
used to justify wrongheaded policies and neglect direct observation. “As a
result of this neglect, development economists often analyse societies, systems
and situations which they do not know: they literally do not know what they
are talking about” (Bauer 1972, 289).
Such insights and rhetoric did not endear Bauer to most of his colleagues
and the agencies that give grants to development economists.5 But Bauer’s
insights do help to answer one of Kreuger’s (1997, 2) questions in her review
article on the evolution of thinking on trade and development: “How could it
happen that a profession, for which the principle of comparative advantage
was one of its key tenets, embraced such protectionist policies?” Development
economists were neglecting important principles and facts because they were
not looking at the way people in developing countries actually lived. In his
writings, Bauer not only took issue with the main findings of the “spurious
consensus,” but often showed why there was a gap between the development
orthodoxy and reality.

3In a review of papers recently published in the Journal of Development Economics, Susan Anderson and
Peter Boettke (2004, 307) observe that “formalistic tendencies still dominate,” and they criticize the
minimal attention paid to institutional history.
4 Bauer (1972, 284) further warns that “While the choice of variables on the basis of logical

convenience, simplicity, or elegance of analysis, is often fruitful in the natural sciences, this is
not usually so in social studies, where recognition of the complexity of the problem is
indispensable for valid results.”
5On the proportion of development economists receiving support from the development agencies, see
Klein and DiCola (2004).

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This is not the place to review Bauer’s myriad contributions to the

development debate.6 Rather, by examining the trade and development issues
Krueger (1997) highlights, we can get a better understanding of Bauer’s
thinking and why he fell outside the mainstream of his profession. The broad
issues she highlights include: the behavior of peasants said to be traditional
because they supposedly did not respond to price incentives; the dependence
of developing countries on primary commodity production, something which
free trade would further exacerbate; and the idea that capital accumulation and
industrialization were critical for growth.

BAUER ON GROWTH AND EXCHANGE

Bauer’s first contributions to development economics included his

publications on Malaya (1948) and West Africa (1954).7 In each place he spent
considerable time and was meticulous in documenting the central role of local
populations in the rapid spread of the cultivation of cash crops. He was able to
show how Asians and Africans, generally lacking formal education, had
transformed the economies of those regions within a few decades. While there
were no rubber trees in Malaya or cocoa trees in British West Africa in 1885,
Bauer noted that millions of acres of cash crops had been planted there by the
1930s, mostly owned by non-Europeans.
His research and observations established a pattern of scholarship that
both challenged received wisdom and set its own high standards of method.
Peasants, it turned out, did indeed take the long view in planting crops that
take years to mature, responded to price signals, and otherwise responded to
market incentives. Their supply curves did not bend backwards. Theodore
Schultz’s (1964) study of traditional agriculture, cited by Krueger (1997), later
was important in undermining the idea that peasants are nonresponsive, but
Bauer was perhaps the first to show the folly of that idea.
In studying Malaya and West Africa, Bauer (1954, 3) found it “necessary
to restrict abstraction rather severely, and to investigate factors and influences
which are often regarded in modern studies in economics as institutional
elements (or as data given to the economist). This survey therefore includes a
review of some factors which are normally omitted from most modern text-
books on economics, and even from some of those professedly dealing with
applied economics.” As such, Bauer was able to document aspects of the move
from subsistence production to wider exchange that were unknown or ignored
by orthodox development economists. Elkan (1982, 247) claims that Bauer’s
early work “foreshadowed the discovery of the ‘informal sector,’” while Yamey
(1987, 22) states, “I believe [Bauer] was the first economist to recognize the

6 For a good general review of Bauer’s thinking, see Dorn (2002), Cato Journal (2005), and Blundell
(2002).
7 See Bauer (1948) and Bauer (1954).

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extent and economic significance of what has come to be known as the informal
sector.”
One phenomenon that was typically ignored in the development
literature was the role of traders. Traders, Bauer observed, open up possibilities
for farmers otherwise engaged in subsistence production to invest in
production for trade. A large part of capital formation takes the form of non-
monetary investment—for example, the clearing and improvement of land
which requires personal effort—that is not captured by official statistics. Yet
Bauer observed that in the aggregate, such activity from small farmers was
significant, and its neglect by academics and policymakers led not only to
misperceptions about economic activity, but also to flawed policies including
taxation of farmers who were thus discouraged from engaging in capital
formation.
Bauer thus early on had a healthy skepticism of official statistics and
refuted the popular notion that large amounts of capital were necessary for
growth. To Bauer (1987, 6), “Lack of money is not the cause of poverty, it is
poverty,” and to have money is the “result of economic achievement, not its
precondition.” He explained (1981, 248) that what is required are “changes in
attitudes and mores adverse to material improvement, readiness to produce for
the market instead of for subsistence, and the pursuit of appropriate
government policies. Much of capital formation is not a pre-condition of
material advance but its concomitant. Housing is one example . . .
infrastructure (roads, railways and the like) is also a collection of assets and
facilities which do not precede or determine development, but are largely
developed in the course of it.”
In this sense, Bauer saw no reason why the role of capital would be any
different in the Third World than it was in the West, where other factors, such
as institutions that support an exchange economy, were the keys to economic
progress. The notion of a vicious cycle of poverty was contradicted not only by
the experience of the West, whose initial condition was poverty, but of what
Bauer observed in the Third World. The prevalence of the “vicious cycle” idea
further confirmed the neglect of evident reality so widespread in his branch of
economics. His views on capital also led him to reject foreign aid as essential
for growth and to criticize forced savings schemes, which were a central part
of import-substitution.
The role of traders in bringing about development was underappreciated
in other important ways. Traders regularly provided credit to small farmers and
served as intermediaries with manufacturers and the outside world. But the
lines separating farmers, traders and manufacturers were often not easily
drawn, a fact usually ignored by policymakers and development economists.
Farmers were often also traders, and successful traders often became leading
manufacturers. Moreover, consumer goods brought in from abroad were not
detrimental to savings and investment; rather they acted as incentive goods
leading to greater productivity and investment. The development of

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agriculture, because of trade, was complementary to the development of

industry (just as consumption and investment were complementary). Neglect
of these facts also led to inappropriate policies.
Still, Bauer was quick to point out that development did not depend on
the development of manufacturing, which in turn did not depend on coercion
or central planning. To suggest otherwise was to be ignorant of economic
history and to confuse correlation with causation: “this argument for
industrialisation, as somebody once said, is analogous to the suggestion that
smoking expensive cigars will make people rich as it is rich people who smoke
expensive cigars.” (Bauer 1972, 143).
Bauer went on to suggest why poor countries should not shun agriculture:

There are various reasons why in many poor countries a large

measure of continued reliance on agriculture, notably on
agricultural production for sale, is likely to represent the most
effective deployment of resources for the promotion of higher
living standards. One reason is the familiar argument based on
comparative costs. Another, less familiar, reason is that production
of cash crops is less of a break with traditional methods of
production than subsidised or enforced industrialisation.
Agriculture has been the principle occupation in most of these
countries for centuries or even millennia. Thus in the production
of cash crops the difficulties of the adjustment of attitudes and
institutions in the course of the transition from subsistence
production to an exchange or money economy are not
compounded by the need to have to acquire at the same time
knowledge of entirely new methods and techniques of production.
After some time spent on the cultivation of cash crops, people
find it easier to get used to the ways, attitudes and institutions
appropriate to a money economy. This greater familiarity with the
money economy facilitates effective industrialisation. In these
conditions of transition from a subsistence to a money economy,
conditions widely prevalent in poor countries, production of cash
crops and effective industrialisation are complementary through
time. The unfavourable contrast often drawn between agriculture
and manufacturing, to the detriment of the former, is an example
of a time-less, unhistorical approach to economic development, an
approach which is inappropriate to the historical development of
societies. (Bauer 1972, 144-45).

We now know, of course, that import substitution industrialization led to

a tremendous bias against agriculture, as well as other economic distortions
inimical to growth. East Asian countries that abandoned that model confirmed
Bauer’s insight, as did, sadly, countries that did not. Indeed, Bauer (1957, 79)

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warned against the “restrictive measures” being applied in much of Africa and
the developing world: “these economies have not experienced the
comparatively long spell of relatively unrestricted economic activity undergone
by developed countries in the past; this early emergence of effective economic
restrictionism may appreciably retard their rate of economic progress.”
In other areas related to development thinking on trade, Bauer’s critiques
were equally prescient and devastating. Examples include his critique of the
United Nations Conference on Trade and Development (Bauer 1972, first
published in 1967) and his discussions of agricultural marketing boards, the
supposed deterioration of the terms of trade, commodity agreements, and
balance of payments crises. Throughout, Bauer (1972, 457) did not tire of
pointing out that “Now, as in the past, the most advanced of the
underdeveloped regions and sectors are those in contact with developed
countries.” Among the leading development economists, his exposition of the
effects of trade on poor countries was by far the most conceptually sound.

BAUER’S INFLUENCE

Any attempt to explain Bauer’s marginalization within his profession is

necessarily conjectural. What would explain, for example, Little’s (1961)
criticism of Bauer as a “political adolescent” followed years later by an
apparent conversion of views—as expressed in his book Economic Development
(Little 1982)—consistent with Bauer’s own market-liberal views but in which
Little refers to Bauer only in one footnote (which itself does not reference
Bauer’s thinking)?8
In her survey article on trade policy, Krueger (1997, 7) refers to the
1950s and 1960s and observes that “For more than a decade, the growing
disparity between theory and practice was all but ignored.” She adds that,
“One of the puzzling aspects of the evolution of thinking about policy is the
degree to which proponents of open trade regimes failed to refute the
allegation that free trade would forever leave developing countries specialized
in production of agricultural commodities” (11). Evidently, Krueger was either
ignorant of or unimpressed with the refutations offered by Bauer.
It may be, as Lal (1987, 46) points out, that the discomfort of
mainstream economists with Bauer is due to “an epistemologically unsound
positivist view of economics as a science.”9 Bauer, by contrast, warned against
approaching the study of economics as though it were akin to a physical
science. Data is important, but so are relationships between phenomenon that
can only be discovered through direct observation including factors that are
not easy to quantify such as attitudes or the time dimension.

8 See Lal (1987) for this account.

9 Lal cites McCloskey (1983) as making this more general point about the economics profession.

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Following a different methodological tradition, much of the research on

trade that helped overturn the development orthodoxy was empirical. Krueger
rightly notes that much of it also depended on measurement tools, such as
cost-benefit analysis, that could be applied across countries. As such, the trade
research provided powerful evidence on the costliness and arbitrary nature of
protectionism. Krueger is probably right when she notes that this research and
the development experience itself played the key roles in undermining the
prevailing consensus. But it seems that pro-trade economists would have been
more effective had they been less dismissive of Bauer.
Indeed, Bauer’s classical liberal sensibilities allowed him to see things
that were arrived at years later by others. Examples of this include his
emphasis on institutions, customs, and government policies as the key
determinants of development, and his dim view of the politicization of life that
comes with increased state interventionism, an insight that would later be
developed by research on bureaucracies and rent-seeking.
In Southeast Asia and West Africa, he was able to see economic progress
that “was not the result of conscious efforts at nation building (as if people
were lifeless bricks, to be moved about by some master builder)… What
happened was in large measure the result of the individual voluntary responses
of millions of people to emerging or expanding opportunities created largely
by external contacts and brought to their notice in a variety of ways, primarily
through the market. These developments were made possible by firm but
limited government, without large expenditures of public funds and without
the receipt of large external subventions” (Bauer 1984, 31). The fact that
advanced sectors of the economy co-existed with traditional sectors was
evidence to Bauer of the spread of economic progress, especially when put
into a reasonable time frame and compared to the similar historical experience
of the West; it was not evidence of enclaves or the lack of backward or
forward linkages.10
Bauer’s particular approach to the study of development, though
uncongenial to some, afforded him those and other insights. Yet another
explanation as to why those insights were underappreciated was the fact that to
younger generations of economists, they were simply unknown. Lal (1987, 43)
reports that, given negative reviews, Bauer’s work was long “written off” by
Lal’s contemporaries. William Easterly notes that “It is amazing how much of the
research and thinking of my like-minded co-authors and me was anticipated
decades ago by Bauer, without us realizing it. A not so obvious example of this is
Bauer’s skepticism about investment and capital accumulation as a very important
force in economic development, which people like Ross Levine, Lant Pritchett,
and I have shared in several papers in the last decade” (Easterly 2005).

10 For a good review of the rise of Europe that is informed by Bauer’s insistence on examining

centuries of historical background, see Raico (1994).

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In the end, Bauer’s influence may be greater than is generally appreciated.

As development economics has matured and gained a more sophisticated
appreciation of the complexity of the growth process, prominent scholars have
favorably cited Bauer in recent years.
And students of development
economics seeking insight and
inspiration will continue to read Bauer.
Yet, now that the general consensus
favors market-oriented policies, I
believe that Bauer would have been
skeptical of recent initiatives
undertaken under that banner. One
example of such initiatives is the
currently fashionable effort by some aid
agencies to promote “sound” policies
and institutions. In critical ways, Bauer is
still ahead of the debate.
Bauer (2000) once described
Indian economist B.R. Shenoy as a hero Sculpture of Peter Bauer
and a saint. Shenoy dissented from By Lyn Constable Maxwell
policy opinions that prevailed in his (Link)
country in the 1950s.11 To Bauer, Shenoy was a hero because he publicly resisted
development fads, and he was a saint because he remained serene “in the face of
neglect, disparagement, even abuse.” Bauer claimed that Shenoy had personally
influenced Bauer’s own conduct and opinions. “Shenoy united moral courage,
intellectual integrity, and technical competence to an exceptional degree. The
few people who possess this combination of attributes are of great value, both in
public life and in academic study. They are particularly valuable in the study of
society, where they are especially rare.” Bauer concluded: “May the succession of
Shenoy and his like never fail, East or West.” Quite so.

APPENDIX

Excel file explaining search and listing citations to Peter T. Bauer in the
American Economic Review (1911-2004), World Bank Economic Review (1986-2007),
and World Bank Research Observer (1986-2006). Link

11 For compilations of Shenoy’s writings, see Shenoy (2004a) and Shenoy (2004b). For essays on

Shenoy and other Indian market-liberal scholars in the post-World War II period, see Shah (2001).

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REFERENCES

Anderson, Susan and Peter Boettke. 2004. The Development Set: The Character of
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London School of Economics and Political Science.
Bauer, Peter. 1954. West African Trade: A Study in Competition, Oligopoly and Monopoly in
a Changing Economy. Cambridge: Cambridge University Press.
Bauer, Peter. 1956. Lewis’ Theory of Economic Growth: A Review Article. American
Economic Review 46(4): 632-41. Reprinted in Bauer (1972).
Bauer, P.T. 1957. Economic Analysis and Policy in Underdeveloped Countries. Durham,
N.C.: Duke University Press.
Bauer, Peter. 1972. Dissent on Development: Studies and Debates in Development Economics.
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Bauer, Peter. 1981. Equality, the Third World, and Economic Delusion. Cambridge, Mass.:
Harvard University Press.
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Bauer, Peter. 1987. Creating the Third World: Foreign Aid and its Offspring. Journal
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Bauer, Peter. 2000. From Subsistence to Exchange and Other Essays. Princeton, N.J.:
Princeton University Press.
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Affairs.
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27.

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ABOUT THE AUTHOR

Ian Vásquez is the director of the Cato Institute's Center

for Global Liberty and Prosperity. He is the editor of
Global Fortune: The Stumble and Rise of World Capitalism
(2000) and coeditor of Perpetuating Poverty: The World Bank,
the IMF and the Developing World (1994). Vásquez has been a
term member of the Council on Foreign Relations and is a
member of the Mont Pèlerin Society. His email address is
ivasquez@cato.org.

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